Will Sale Of House Affect Tenancy Agreement?

Source : The Sunday Times, Dec 30, 2007

Q WE RENTED out our house in April last year. We signed a three-year tenancy agreement prepared by the tenant's agent.

As the property's price has gone up a bit, we wish to sell this house. A potential buyer is willing to offer a price but does not wish to take over the existing tenancy agreement as he intends to live there.

After going through the tenancy agreement, I realise that something is amiss.

In the terms and conditions under 'option to renew', it states that the tenant is entitled to a three- year renewal on the same terms and conditions if the tenant makes a written request not less than three months before the expiration of the tenancy and if there is at the time no 'existing breach or non-observance of any of the agreements and stipulations on the part of the tenant herein contained' and 'as long as the landlord remains unchanged'.

In another part of the terms and conditions, it says that 'in the event that the landlord decides to sell the premises, the landlord or his agent will be permitted to arrange viewing of the premises at a reasonable time of the day by prior appointment giving one day's notice. The landlord will have to sell with tenancy to the new purchaser'.

1. Can we break the lease? What is the penalty?

2. If the buyer takes over the tenant, does he have to sign a fresh tenancy agreement? What if he does not agree with the rental or terms and conditions?

A FIRST, the current period of the lease. You cannot break the lease unless there is a breach of any of the covenants. These covenants are usually spelt out in the Tenancy Agreement.

The most common covenant would be the duty for the tenant to pay rent. If he does not pay the rent on time or at all, it is a breach of the covenant which may entitle you to terminate the tenancy agreement. You will need to look closely at the provisions on whether you need to give notice to the tenant and to allow him a grace period to remedy the breach.

Second, the contractual obligation to renew the lease for a further three years at the same price provided (1) the tenant wishes to renew the lease and (2) he was not in breach of any of the covenants (that is, non-payment of rent) at the time he asks to renew the lease.

Insofar as this clause is concerned, it is a contractual term which you have agreed to and on which you cannot now renege.

A breach of the tenancy agreement is a breach of the contract. The loss payable to the tenant would be that which would put him in a position as if the tenancy had never been terminated.

This means that he is entitled to claim from you the additional rent he has to pay in order to get accommodation of the same or similar size and location. In other words, you would be liable to pay him for additional rent incurred for three years plus the remaining period of the current term.

To answer your second query, when a purchaser buys a property with tenancy, it means that he is agreeing to take over as the landlord from the last owner.

In other words, the tenancy will continue but merely with a new landlord. The terms cannot be changed.

In this case, a buyer needs to agree not only to buy the property, but also to the tenancy on the same terms as the current ones.

The clauses in this case are not usual and are not in the interests of the landlord.

Most tenancy agreements tend to be in the landlord's favour and would include for example, a clause to say that whenever the landlord sells the property, the tenancy is deemed to be at an end and that there will be no recourse to the landlord for any loss incurred.